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Lecture 1

REM 420 Lecture 1: Lecture 2

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Real Estate Management
REM 420
David Scofield

Lecture 2 – Sustainability in Real Estate Sustainable Real Estate Development and the Environment What is Sustainable Real Estate Development? • Market institutions tend to promote efficiency or maintain social stability, however that may be defined They can usually do one or the other, but not both • Includes supply management and stability at the cost of innovation – This is an example of an institution Supply management – Each province has a board to manage inventory of certain resources which helps to guarantee a price and undermine innovation This is a reason why Canada suffers from a lack of innovation because we have a “cap” on managing the supply of our resources • Sustainability - Meeting the needs of the present without compromising the ability of future generations to meet their own needs Defined by the World Commission on Environment and Development How can the Development of Real Estate Not Affect the Environment? • Land depletion – We can create land, but at what cost? Greater brownfield reclamation – Contaminated land that used to be industrial and is contaminated to a certain degree The problem is that the industrial land could be dating back to chemical production from many years ago, which will be hard to track • Power usage Increased use of renewables, greater efficiency In order to attract certain occupiers of space, development could use LEED certification to bring them in Also includes minimal water usage, minimizing utility usage, alternative transportation methods • Urban externalities Stronger role for local communities – Having some strong legislation that really lay down the rules for development so that 50 years down the road, we won’t regret the development that we have put up in the city Ex. BMO was torn down, which was a 110-year-old building. Developers doing such acts is ruining urban externalities Also may include coordination for development between developers in the same area (ex. Having many concrete trucks show up at the same time in the same area, causing congestion in a certain area) Intensification • Intensification is one of the biggest urban externalities that are important about sustainability • How dense is too dense? Toronto is the most dense city in the country but we don’t handle the density so well (Subways aren’t expanded as much as they should be, sidewalks are being kept the same size, yet more buildings are going up in the core of the city) • Positive points about intensification and density From a social perspective, density could be a benefit because networking with reputable individuals in the core could be beneficial Value of properties will most likely rise, even though they don’t feel it everyday Ideas of using transportation infrastructure more effectively if we live more densely We will eliminate sprawl • Drawbacks about intensification and density When there is more density, humans need larger sidewalks, more parks and more space, but unfortunately this does not appear, even though more condos are going up. • What is the value of these gains/losses? Sometimes a dollar value is put to the benefits and drawbacks • GTHA demonstrates our density in the city of Toronto Elements of Sustainability • Considering Canada’s oil pipelines in terms of sustainability within the threeEnvironment elements Canada’s economic stability focuses heavily on natural resources. There is a lot of discussion behind the use of pipelines. They can address economic stability because people are going to be oil for many years ahead. Environmentally and Society are hard to justify with the oil pipelines. It is therefore a trade-off between the three, where sometimes one of the elements will have to be traded off for the others • Is our current economic system, dependent as it is on constant growth to offset ever increasing debt, sustainable? Our household debt is growing so quickly, which may cause a concern in the future because we need constant growth. Sustainability Economy Society • There are linkages between the environment and economic activity at all levels • Sustainability: economic growth and development is “sustainable” if and only if the stock of overall capital assets remains constant or rises over time • Environmental accounting: the preservation or loss of valuable environmental resources should be factored into estimates of economic growth and well-being – The environment has to be included as a measure Sustainable Accounting • NNP* =GNP –Dm –Dn –R –A NNP*: sustainable net national product Dm: depreciation of manufactured capital assets Dn: depreciation of environmental capital: monetary value of environmental decay over a year R: expenditure required to restore environmental capital (forests, fisheries etc.) A: expenditure required to avert destruction of environmental capital Core Economic Insights and Government Policy • Economics is the science of choice The act of choose is the conscious selection from among alternatives, also referred to as the logic of choice • It is also the idea of spontaneous order Opportunity Costs • Resources are scarce and ends multiple Ends are multiple – We (Canada) have many natural resources, but we may have not made the best use of what we have • To worry about costs is to worry about benefits forgone in other sectors If we invest in this, the capital will not be available for something else Ex. If we invest in implementing new policies, we won’t have the budget to invest into R&D and therefore we must make decisions about the future • Spending and regulatory decisions that use scarce resources incur costs in terms of foregone alternatives • The costs relevant to decisions are those connected to opportunities • Politicians often say, “we give primary consideration to the public welfare, but cost considerations are also important.” – Does this make sense? • Opportunity costs and maximizing goals - to the economist, the phrase ’greatest possible’ is almost devoid of meaning because it suggests a violation of the human condition – it denies the economic problem of choice and conflict among competing ends We are always making decisions on the margins about whatever will be the best use of resources or time. By doing so, there is a real cost to everything we do and there will be other foregone costs that will be taken into consideration • Marginalism – Defined as opportunity costs, and opportunity costs are defined as alternative benefits Water and Diamonds • Total and marginal utility • Marginal utility is the satisfaction gained from consuming one more “unit” of a good or service; marginal cost is the cost of producing an additional unit of the good or service • A bucket of diamonds or a bucket of water? Preferences will depend on marginal utility Does more of one give greater satisfaction than more of the other? Depending on the situation, answers will differ • The price of diamonds is higher because people value them and they are much
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